The Grameen Bank has made internationally famous a phenomenon that has probably existed for ages—giving loans to the poor without any collateral. We know that Dean Swift, the Jonathan Swift who wrote Gulliver’s Travels, gave out such loans in Ireland; we also know of many other philanthropic individuals who have done the same over the centuries. What has been new and innovative in Bangladesh is the systematic way in which many individuals, such as Muhammad Yunus of Grameen and F. H. Abed of BRAC (a Bangladeshi NGO), have not only looked for ways to enable the poor to help themselves but also sought to organize, develop, and popularize institutions which will make the eradication of poverty a systematic process and not just an individual act of benevolence.

Bangladesh is a country the size of Illinois, but whereas Illinois has some 12 million people, Bangladesh already has 150 million and the population is expected to grow in the 21st century to 250 million. Even though Bangladesh, being the delta of the two largest rivers of the Indian subcontinent, has been blessed with very fertile agricultural soil, it takes little imagination to realize that poverty looms over the land. No doubt this challenge will have to be met by the people themselves, but the state also has the responsibility to take those actions which enable individuals to better themselves. Governments have the responsibility to provide law and order so that people can confidently invest for the future, and to build appropriate infrastructure, such as roads and telecommunications, so that the effectiveness of individual action is multiplied. Globalization means that the world market is open to anyone, but this is true only in principle.

The ordinary people of Bangladesh have shown an unbelievable capacity for hard work and for adapting to new circumstances. In 1947 the land that is now Bangladesh had about 47 million people; in 1971 when Bangladesh was founded, the population stood at some 70 million; today it has grown to 150 million, and yet, it is the conviction of my generation that the ordinary people today live and eat better than they did when I was a child. How can this have been achieved if it were not for the superhuman energy of the Bangladeshi people, coupled with the advice of well wishers, in addition to the transfer of new technology? This energy is perhaps most evident in the remarkable success of the garment industry of Bangladesh. In some 25 years it has grown from nothing to an industry earning about two billion dollars. Anyone who looks at labels while shopping for clothes will have seen “Made in Bangladesh” and they should know that they are seeing the fruits of Bangladeshi entrepreneurship.

What is different about a bank for the poor? To begin with, it caters to those who have no assets and hence cannot provide any collateral for the money they borrow—all they have to offer is their skills. It was the sight of highly skilled women who struggled for pennies a day that originally stimulated Yunus into forming the Grameen Bank. Yunus was convinced that if these women could only be given a start, they would be able to look after themselves. It was entirely possible that the loan would never be returned, but this was a risk Yunus was willing to take. So he gambled on the poor—and the rest is history.

The Grameen Bank gives very small loans to the poorest of the poor; it is a condition of eligibility that the borrower has no assets. The total number of borrowers at present is 6.61 million. Typically, the money is loaned to a group of five. While only the borrower is responsible to repay the loan, if the money is not paid in installments as due, no other member of the group is eligible for a loan. The bank did not start with a focus upon women, but it soon found that they were far more responsible than men. A striking economic fact is that under these unusual banking arrangements the repayment rate for the loans exceeds 97 percent. In poor countries, where the rich borrow millions and often have repayment rates below 50 percent, this is a remarkable phenomenon. There is a simple phrase—”the poverty of the poor is their undoing”—and the Grameen Bank works to reverse the usual course of things.

Critics say that the Grameen Bank depends upon donor aid, that the group responsibility system is an imposition upon individuals, that the system works only for small numbers, that the bank possesses cult-like features, and so on. Each of these points can be contested, but let us grant all of them. Suppose it really does cost some subsidy to get such a bank to work. No one denies that, as a result, individuals are brought out of the depths of poverty. So the bank does succeed in its primary mission. But one should not stop there. It is not just an economic change that takes place. People are poor for many reasons; many who are poor want some advice and help on how to get out of their unhappy situation. They need to respect themselves, take pride in their abilities and get some instruction on how to meet the discipline of the market. This is what the Grameen Bank provides.

The social impact of the Grameen Bank is best understood by looking at the “Sixteen Decisions” that all members have to agree to uphold. Consider just one of these decisions: the refusal to marry off underage daughters, and to neither take, nor give, dowry. Is it not worth some subsidy to achieve a society where such behavior becomes the norm? The criticisms that are made of the Grameen Bank, even if they are true (which is not at all clear), are misguided—the critics typically have no idea of the misery of the poor or of their alternatives.

Economists believe that economic growth arises from the efforts of wealth-seeking and knowledgeable individuals to better themselves. The implicit picture is that of someone who knows his or her own abilities, scours the market for profit opportunities, and calculates the value of each option before finally choosing the optimal alternative. It would help if economists stopped theorizing about the world and looked to see the lives of the poor directly. What if individuals are so close to starvation that they simply cannot afford the luxury of looking around, assessing chances and optimizing? Often the poor have no real choice but to accept whatever comes their way. Markets function well only when they are embedded in society; since economics has nothing to say about how to get people ready to meet the challenge of the market, micro-credit has stepped in to form a vital bridge between abject poverty and economic growth. Dr. Yunus, the Grameen Bank, and Bangladesh have provided a successful and replicable model of poverty alleviation.